Monthly Archives: July 2014

The modern American economy was built, in large part, on fossil fuels. Rather than heavily investing in public transportation throughout the 20th century, the U.S. government sought to promote ubiquitous car ownership in America in order to fuel its industrial economy (quite successfully as the American automobile industry was, for a significant period, the dominant supplier of cars in the world) and meet the transpirational needs of its highly dispersed population (crisscrossing the country with numerous, publicly financed, highways). For these, but certainly other reasons as well (i.e. strategic military concerns, direct or indirect personal financial stakes in private energy firms among policy makers and government officials, etc.), the U.S. government has worked hand in hand with the several corporations (i.e. BP, ExxonMobil, etc.) that make up the fossil fuel industry to ensure the constant supply of oil and gas to its economy for more than a century. However, the immediate and future, destructive effects of global climate change, a process which the overwhelming majority of the scientific community attribute to the exponential and growing emission of greenhouses gases resulting from human activity (fossil fuel usage foremost among those activities), is placing more and more pressure on the U.S. and other governments to implement policies designed to curb such emissions. Even so, the U.S. government remains relatively unresponsive to this increasingly dire situation (it is one of only four nations to refuse ratification of, and ultimately abandon, the Kyoto Protocol [a multilateral treaty designed to limit greenhouse gas emissions globally]). Given the fact that the United States produced 19% of humanity’s emissions in 2008, this inaction toward climate change on the part of the U.S. government is dangerous.

The U.S. government remains unable to implement policies designed to curb its population’s greenhouse gas emissions and thereby address the threats posed by climate change because of the significant political obstacles presented by the fossil fuel industry. Big Oil is, and has for more than a century been, one of the most powerful special interests in American politics. It’s representatives utilize the industry’s significant financial resources and political clout to block or cripple any legislation or policies that might impede the maximal profitability of the corporations that form that industry, meaningful climate change initiatives in particular. The industry exerts itself politically in a variety of ways. It spends millions annually on political campaign contributions and lobbying, staffs government agencies with Big Oil operatives (thus establishing iron triangles between the industry and government regulatory agencies) and utilizes generous government subsidies to maintain dominance in the energy market over potential competitors (i.e. wind, solar, etc.). Understanding these factors is necessary before any meaningful efforts to severely undermine the industry’s political influence and thus free up more government officials to pursue policies designed to address climate change can be made.

The industry’s overall political contributions exceeded $140 million in 2012 alone. Generally, the industry transcends political parties, contributing more to which ever side favors their views more in a given circumstance. For example, Democrat Barack Obama received significantly more campaign contributions from Big Oil in his 2008 presidential than his supposedly more pro-business opponent John McCain. Furthermore, the industry collectively spends around $174 million a year on relentless lobbying efforts to ensure that its interests are consistently represented in any energy related policy or legislation. Importantly, the industry strategically targets certain legislators, with the aim of maximizing their returns. In the 2010 election cycle, individual members of the Senate Energy and Natural Resources Committee each received an average of $52,000 either directly or indirectly from the industry. The ease with which the oil and gas industry is able to legally utilize its substantial financial interests in order to hijack the government and further enrich itself at the expense of humanity’s welfare is disturbing and dangerous in and of itself, but it is also reflective of contemporary America’s increasingly oligarchic political process, wherein politicians are incentivized to serve the interests of the highest bidder rather than that of their constituents. In response to this trend, disgruntled citizens should join with grassroots groups like Mayday PAC and Wolf PAC and petition their state level representatives to call for a Article V Constitutional Convention to amend the U.S. constitution and limit the influence of money in politics. Thanks to widespread grassroots campaigning, Vermont’s state government was the first state to do this on May 2, 2014 and California’s has since followed.

Big Oil largely regulates itself, with most significant government positions tasked with policing the industry staffed by either former and/or future industry operatives. It was just this kind of blatant collusion than helped create the regulatory failure that lead to the 2010 BP oil spill in the Gulf of Mexico. Sylvia Baca, a BP executive, was appointed to serve as a Deputy Assistant Secretary for Land and Minerals Management by Obama’s Interior Secretary, Ken Salazar (who himself had close ties to “Big Oil”) in 2009. In addition, Obama’s Energy Secretary, Steven Chu, a recipient of a $500 million grant from BP oil while head of a research institute at the University of California, appointed BP’s chief scientist, Steven Koonin, as DOE undersecretary of science upon entering office. BP’s political activities present a particularly egregious example of regulatory failure: 22 of their 37 registered lobbyists have held high level positions in the executive and legislative branches or as senior staffers. Regarding the Minerals Management Service, which waived obligatory environmental reviews and permits that could have prevented the 2010 disaster for offshore drilling in the Gulf and other places, Mandy Smithberger of the Project on Government Oversight has said that “the revolving door has spun so readily in this case that the lines between the regulators and the regulated are now virtually nonexistent.”

Estimates regarding the annual amount of U.S. tax dollars spent on government subsidies for the oil and gas industry range from $14 to $52 billion. Importantly, the industry likely would not maintain the dominance in the energy market that it currently does, and historically has, were it not for these subsidies. It will remain difficult, if not impossible, for alternative energy sources to compete with fossil fuels in the energy market so long as Big Oil continues to benefit from such disproportionate public investment. U.S. government subsidies for the industry come in a variety of forms, including, but not limited to, special tax levies and exemptions, low cost government provided insurance and indemnification, government funded R&D in energy, regulatory exemptions, first choice for government energy contracts, energy price controls, cheap loans, provision of information not privy to competitors, restrictions on trade related to energy, government ownership of costly components of energy production, direct spending, customer subsidies and government lending. Hydraulic fracturing, the highly destructive process by which natural natural gas is extracted from deep underground, came into being as a method of energy acquisition due to the $100 million of government research and development. As always, the fruits of this publicly funded, albeit controversial, research initiative are currently being reaped by private energy companies, while the inevitable environmental and health costs which will be incurred by fracking will fall on taxpayers and residents near fracking locations.

Climate change will not be meaningfully addressed by the United States until the fossil fuel industry’s political power is seriously undermined. This is the case because that industry, which rightly sees initiatives designed to limit greenhouse emissions as threatening to the maximal profitability of their ventures, utilizes lax campaign finance laws, flagrant iron triangles and extensive government subsidies that maintain the industry’s domination over the energy market in order to crush such proposals and abort alternative energy initiatives. This reality is endemic of a larger oligarchical trend in U.S. politics.

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As modern globalization continues to yield increased cross-border commercial activity and the establishment of cross-boarder production systems, distribution networks and financial markets, the American government continues to simultaneously act as the harbinger, primary referee and eventual victim of this process. Having secured de-facto, if not perceived (with respect to concerns over the Soviet rivalry), hegemonic economic power after Europe destroyed itself and the imperial world order collapsed in the 1940s, the U.S. established international institutions (I.e. the Bretton Woods system, the GATT agreement, the World Bank, and the International Monetary Fund) designed to generally encourage global neoliberal norms of economic development and conduct (free-trade, small government, etc.) among nation-states, while promoting good behavior among transnational economic actors through the creation of certain economic norms and conventions. Along side this effort, was a commitment on the part of the U.S. government to selectively implement protectionist policies and bi-to-multilateral agreements designed to protect certain politically powerful American economic interests (Ie. U.S. farm subsidies and protections in NAFTA [which incidentally destroyed Mexican agriculture], patent protections for U.S. Pharmaceuticals in the TPP [Trans-Pacific Partnership], etc.)

It’s no secret that globalization, as it has thus far occurred, along with the evaporation of private sector labor unionization and neoliberal policies of wealth redistribution away from the working class toward the business one, have significantly contributed to the evaporation of the relatively high levels of social mobility, employment and wages that defined the immediate post-war American economy. Though both low wage and highly skilled service sector jobs have increased, de-industrialization and the resulting outsourcing of previously American production has seriously diminished the U.S.’s manufacturing base (the traditional bedrock of American social mobility and working class economic prosperity).

With a U.S. trade deficit of $111.2 billion in the first quarter of 2014 and the working-class in an undeniably worse situation than it was several decades ago (I.e. un or underemployment, stagnant or lower wages, etc.), the American government will have to implement further protectionist policies aimed at maintaining/regaining labor intensive industry, encourage/subsidize export-oriented production, establish multilateral agreements that set universal private sector labor standards and encourage unionization domestically and internationally so as to both level the playing field in terms of competition for transnational investment and improve the welfare of the global working class. Otherwise, it will need to radically enlarge its welfare state either by repatriating and taxing the capital that is increasingly fleeing the U.S. in favor of tax-havens and complex/seemingly untraceable financial networks or by nationalizing certain private industries (ideally the ones that already rely on government subsides/policy in order to remain profitable). Ideally, the U.S. government could, rather than simply and futilely bailing out bankrupt American firms, follow the Argentinean example and legally require such companies (and/or businesses seeking to outsource their production to more “competitive” countries where workers have very little or no rights) to sell their American production facilities to the employees at those same facilities. Otherwise, the government could itself give (or at least sell at a reasonable cost) said production centers to those employees after nationalizing such firms (this strategy should have been followed after the recent bailout of General Motors). Likely, a combination of these different approaches will be necessary if the general standard of living to which most U.S. citizens are accustomed is to be maintained in the future. As the 2008 financial crisis laid bare, the increased availability of credit to working class Americans can only offset these negative trends to a limited degree and at great long term risk.

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Early 20th century political debate was largely dominated by discussions within the Progressive movement about the role of government with respect to its interaction with the private economy. Fundamental changes (foremost among them: industrialization, the expansion of railroads, the increased availability of capital investment and numerous government policies aimed at facilitating economic growth) had, by the end of the 19th century, morphed the United States from a disparate collection of largely self-sufficient local communities into a complex integrated national market characterized by unprecedented corporate consolidation and reorganization (i.e. Railroad barons and the so-called “Seven Sisters” oil companies). This new economic reality drastically increased the exchange of goods and ideas and fostered marvelous technological advancements, but it also largely subordinated society to industrial mega-conglomerates and expansive financial firms, encouraged highly destabilizing and frequent financial booms and busts and transformed most of the largely multi-skilled independent and/or communal agrarian American population into specialized and commodified urban wage slaves (there was a parallel growth of organized labor during this time period, which sought to improve the status and advance the interests of these wage-slaves [i.e. the Knights of Labor]).

Progressives all argued for an expansion of the state in reaction to these changes in the private economy, but they argued over the state’s precise role. Proponents of the corporatist “New Nationalism,” like Theodore Roosevelt and Herbert Hoover (who advocated the more specifically pro-business “Associationalism”), believed that the state should facilitate large-scale industrial innovation and cooperate with big business in an effort to promote good behavior and safeguard the public welfare from bad economic actors (who would be subject to anti-trust prosecution). On the other hand, more adversarial and statist minded progressives, like Woodrow Wilson and Franklin Delano Roosevelt, stressed the need to empower neutral state agencies in order to provide government oversight of the private sector and hinder the expansion of monopolies and oligopolies (which they argued, in contrast to New Nationalists, fundamentally damaged economic competition and harmed the public welfare).

Though the reigns of government would change hands multiple times between these two wings of the progressive movement in the first half of the 20th century, with the roaring 20s witnessing the epoch of “New Nationalism” and the Depression-era administration of FDR implementing the most big-business unfriendly/state empowering initiatives, the need on the part of the state to harness big business’s industrial capacity during World Wars I and II and the inability of state agencies to effectively police big business during the FDR era (i.e. the structural deficiencies of most oversight agencies [especially the Federal Reserve, which was and still is directed by private financiers with perverse/personal interests rather than neutral government bureaucrats] yields a significantly asymmetric distribution of information [favoring big business] between regulatory state agencies and the industries they’re tasked with overseeing, usually resulting in the formation of iron triangles [i.e. when, in this case regulatory, government positions are staffed by individuals from the private sector that have direct personal stakes in the government policy decisions that they themselves are tasked with making, sometimes called crony capitalism]), ultimately lead to a victory for those advocating for a large government that works with, and for, private big-business (more in line with “New Nationalism”) rather than against it. Even so, the progressive era, but FDR’s years most specifically, witnessed an exponential expansion of the regulatory welfare state. Agencies tasked with ensuring good business behavior, though largely dominated by the industries they purport to police, and entitlement programs designed to ensure a basic level of public welfare, though many have seen serious reductions in their funding, persist to this day.

The latter half of the 20th century witnessed the initial expansion and subsequent decline of the Keynesian welfare state, as well as the advent and growth of an alternative neoliberal regime (though many assert that Reagan’s decision to shift government spending away from “butter” [welfare] toward “guns” [defense] amounted to a new form of “Military Keynesianism”). After the OPEC and Iranian oil crises caused a spike in the prices of American goods and services in the 1970s, the Federal Reserve responded by implementing inconsistent and painful monetary policy. The resulting inflation, coupled with a general feeling of disillusionment with the government among the American public (i.e. the Vietnam War and Watergate scandal) as well as a political mobilization on the part of the American business class in response to government regulation and labor activity (i.e. the 1971 Powell Memorandum), set the stage for laissez-faire fundamentalists to capture public policy in 1980. While neoliberal ideology continues to inform most elite policy making, sweeping (but temporary) Keynesian measures were implemented in response to the 2008 financial crisis.

The Keynesian welfare state reached its epoch during the administrations of Lyndon B. Johnson and Richard Nixon. The prevailing viewpoint among policy-makers at that time was that an activist government could, and should, aid, and sometimes replace, the private sector. Johnson combined aggressive fiscal policy with an expansion of the social welfare state (i.e. “Great Society” programs like Medicare and Medicaid). Additionally, Johnson’s efforts at full employment, manifest in his “War on Poverty” and civil rights initiatives, resulted in a historically low 3.8 unemployment rate in 1967. After the unpopularity of the Vietnam war drove Johnson from the presidency, the Republican administration of Richard Nixon initiated a rapid growth of the regulatory state, especially with regard to environmental protection and workplace safety. Generally, the policies of this Keynesian regime favored the working class at the expense of the business class insofar as they were mildly redistributive and protective against corporate excess.

Alternatively, the Reagan, and Thatcher, political revolutions of the 80s responded to the general malaise of the 1970s by drastically reducing the size of certain aspects of the welfare state (i.e. income support for the poor), initiating significant privatization efforts, breaking the already tenuous political power of labor unions, rolling back regulations and redistributing wealth back to the business class through tax cuts. With President Reagan’s declaration that “government is not the solution to our problem; government is the problem,” a new norm of governance was ushered in. Policy-makers during this period generally viewed the private sector as an independent, self-correcting engine of societal growth that was best left alone by a small, except with respect to defense spending, government. This political movement, coinciding with the economic trends of globalization and financialization, ushered in a general stagnation/decline in the status of the working class and a rebound for the business class. The high income and wealth inequality, extreme concentration of private power and frequent volatile financial booms and busts (yielding remarkably little, if any, income gains from labor [actual work] compared to much higher income gains from capital [investments, stocks, property, patents, etc.]) that have resulted from this neoliberal trend should be viewed as a return to what has been the norm for most state capitalist economies in the modern period (except during the several decades after the unprecedented economic shocks brought about by two devastating World Wars and a global depression early in the 20th).

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The relationship between business and labor is inherently antagonistic. The former, as the owner and manager of the production of the latter, allocates the fruits of their laborers’ efforts according to their interpretation of the dictates of the market. Generally, business prioritizes capital (profits) over labor (wages, benefits, etc.) in order to ensure that their firm remains competitive (attractive to existing and potential outside investors looking to buy shares in a firm and turn a profit in the short-term). Labor, in response, often organizes into unions (I.e. cartels of like-labor sellers [employees] designed to counter-act the comparatively more powerful market position of labor buyers [employers]) to collectively bargain with their owners/managers in business and thus both redistribute the fruits of their labor toward themselves and away from capital and protect their collective interests from market forces and/or business decisions.

Though there is a common conception that unions inherently hamper firm competitiveness and thus harm the social welfare by raising prices, this assertion overlooks the fact that unions counteract several social costs associated with certain market imperfections. Specifically, unions offset both employer domination in wage determination (Industries characterized by a labor market in which there is only one, or at least a few, labor buyers [employers] and a great many labor sellers [active/potential employees] [i.e. monopsony] are generally characterized by artificially depressed wages resulting from collusion among a small number of employers [i.e. American fast food and retail].) and the adverse consequences of both externalities (I.e. public illness caused by pollution associated with certain production methods) and asymmetric information (I.e. inflated market prices for some goods resulting from consumer ignorance of the costs associated with the production of such goods [i.e. pharmaceuticals]). Rarely, if ever, is the market for a laborer’s production or service as free or competitive as that laborer’s owner/manager assumes, or at least contends. Additionally, the depressed wages that usually result from low unionization rates harm the larger economy by hampering demand among consumers. This occurs because a large segment of consumers are themselves those same depressed-wage earners. Such low consumer demand in-turn yields weak economic growth more broadly (I.e. the anemic economic growth, and resulting unemployment, of the contemporary American economy.)

In terms of business and labor’s respective influence on the contemporary America’s political process, it is difficult to argue with the contention that labor has been politically vanquished by business, at least in the private economy. After the Great Depression, unions were able to take advantage of both large-scale economic dislocation and business’s weakened status in order to bolster their rolls and mobilize working-class voters. The result was a period of relatively pro-labor government policy (National Labor Relations Act, New Deal, etc.). This explosion of unionization and the resulting growth of labor’s political power, and it’s following decline, is reflective of the commonly made argument that unions grow in spurts, mostly during periods of economic/social unrest, and then slowly decline.

The ultimate demise of private sector unions is attributable to several cascading and longstanding factors: 1) Macroeconomic trends like globalization and the resulting downsizing and outsourcing of production traditionally associated with mid-twentieth century American unions in the face of global competition (i.e. Automotive industry); 2) a well-funded and multifaceted political and public relations business offensive against labor (i.e. National Labor Relations Board appointments by pro-business presidents, Supreme Court decisions that favored business over labor, national [i.e. Taft-Hartley 1946] and state [i.e. “right to work” laws] anti-union legislation, corporate personhood/campaign finance and the resulting money in politics, etc.); and 3) internal divisions within the American political left (I.e. southern Democrats’ prioritization of racist voters over working-class ones [as well as those working-class voters prioritization of racial and cultural political issues over economic ones], opposition to the Vietnam war, the advent of the pro-business New Democrats, etc.). Historically, the modern Democratic Party has prioritized the interests of labor more so than the staunchly pro-business modern Republican Party. However, since the ascendency of the neoliberal regime in Washington D.C., even prominent Democrats like Bill Clinton have been hostile to labor (I.e. NAFTA), prioritizing the interests of big money donors in business (especially finance) over weakened unions. If there was to have been a surge in unionization and labor’s political power, it would likely have had to have occurred after the Great Recession of 2008, but the subsequent failure of the Employee Free Choice Act (a last ditch effort to curtail “right to work” efforts and other widespread anti-union initiates) in 2009, due in large part to opposition from three Chicago billionaires that had backed President Obama’s first presidential campaign, seems to have spelled the end of modern labor’s political power. Labor will likely need to expand unionization efforts among immigrant workers and into the service sector that now dominates post-industrial America, if it is to regain political influence, or at least retain what little it still has.

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This fascinating, albeit disturbing, 1971 memo by corporate lawyer, and future Supreme Court Justice, Lewis Powell details several of the multifaceted and long-term means by which elite holders of concentrated private power would ultimately, largely successfully, reassert their dominance in the United States following the upheaval of the 1960s and the epoch of American Keynesianism in the mid-20th century. This little known, but immeasurably significant, document should be required reading for socially conscious citizens throughout the United States.